FINANCIAL PROFESSIONALS’ BELIEFS ABOUT DECEPTION

By Jason Apollo Voss, CFA & Aakash Saxena, PhD

Let’s cut to the chase, most finance pros clutch to mistaken beliefs about deception. How do we know this? In 2015 “Detecting Lies in the Financial Industry: A Survey of Investment Professionals’ Beliefs” was published in the?Journal of Behavioral Finance?and was the first time in history anyone sought to surface finance pro’s beliefs about deception.

My fellow researchers, all experienced in the Deception Science space, knew from many other similar surveys of beliefs about deception that there were many fictions clutched to by people globally. True to form, we found in our research of 607 financial professionals that many held to the mistaken beliefs.

By sharing our findings we hope to educate finance pros about the biases widely held in the industry about deception, including how frequently they encounter it in the workplace, in their personal lives, and how good they are at detecting deception in both domains.

Overview of the Research

In our research with investment pros we examined:

1. Beliefs about the behavioral characteristics of lying.
2. Perceptions of the prevalence of lies in professional and everyday life.
3. Estimates of their ability to distinguish between lies and truths.

Our Findings about Investment Pros’ Beliefs about Lying Behavior

For each of the below characteristics we asked participants to rate on a scale from 1 to 7 the degree to which the behavior was associated with lying with a score of 7 meaning very strongly associated, and a score of 1 meaning very weakly associated. Thus, any mean above 4 indicates a behavior believed to be associated with lying. For the ratings below statistical significance was p < 0.001, and the size of the effect was measured by Cohen’s?d, reported in the final column.?

As we reported in D.A.T.A.’s article, “Deception Detection: The Pan-Cultural Fiction of Body Language,” very few of the beliefs about deceptive behavior held by financial professionals as shown above is accurate. Correctly held beliefs are those around?mental effort?and?cooperativeness. Namely, lying does take more mental effort than telling the truth, and liars tend to be less cooperative than truth-tellers.

In our Journal of Behavioral Finance work we also asked investment pros about their perceptions about how often they receive truthful information in different contexts. First, investment pros believe that in everyday life people tell, on average, 2.14 lies per day. This result is very close to the actual number reported in the scientific literature of around 2 lies each day. In a work setting, finance pros believe people tell 1.62 lies. In other words, they believe that people in finance are more honest than in everyday life.

Within a work setting we also examined finance pros’ belief about how frequently they are told the truth in four different contexts. Here is what they reported (all with p < 0.001):

We also asked investment pros about the importance of deception detection abilities in their work and we found that they rated it a 5.8 on a 7-point Likert scale, p < 0.001 with?d?of 1.27 (i.e. high effect size). Similarly, investment professionals’ interest in learning techniques that work was 5.6 on a 7-point Likert scale, p < 0.01 with?dof 1.06 (i.e. high effect size).

Last, and most interesting of our scientific findings were those around investment professionals’ beliefs in their own abilities at detecting deception, both in their work lives and personal lives. Note: in our next article we will feature the results of history’s first, and to-date only scientific research of investment pros’ actual ability to detect deception. Here is what we found:

1. Belief in ability to detect deception in work setting = 68.2%, standard deviation of 11.6%
2. Ability to detect deception in personal setting = 66.0%, standard deviation of 12.2%

When compared with the global average success rate of 54% attained, and as measured in multiple meta-analyses, these beliefs seem overconfident.

Conclusion

Investment professionals believe that detecting deception is important. They also believe that they are much better at detecting deception than is supported by hundreds of research studies. Last, their beliefs around deception detection tend to adhere to the pan-cultural fictions debunked by additional science.?